What I Learned in 2012: Part 1
I have been struck by polls showing the declining faith of Americans in capitalism. I studied Economics in college and graduate school, and have always believed that the capitalist engine will always prevail in the long run.
The US economy’s recent performance has made our citizens less optimistic about economic growth and job creation. Even before the Great Recession, income inequality increased. Some argue that technological innovation contributed to the widening gap by generating wealth and decreasing the number of good jobs. Increases in federal taxes may result in income redistribution, but the trend-line of US economic growth does not appear to be sufficient to effect a meaningful reduction in unemployment over the near term. No doubt at least some of this is attributable to an overly complex federal income tax system, excessive government spending and debt, misguided Fed policies, and political gridlock. Even so, it is hard to identify likely drivers of economic growth that will help us grow our way out of the challenging economic conditions we face. But then again, no one saw the Internet coming.
I started the year 2012 thinking that innovation, particularly technological innovation, ultimately will lead to economic growth. As you may recall, the theme of every Georgia Technology Summit (“GTS”) of the Technology Association of Georgia (“TAG”) has related to innovation. As suggested most overtly in GTS’s 2012 theme, “Innovation: The Path to a Bright Future,” our thought has always been that innovation will lead to economic development and job growth.
I continue to hope that the lack of economic growth could be explained by economist Joseph Schumpeter’s theory of the creative destruction of capitalism, discussed in my August 7, 2012 posting.
Although the destructive aspects of capitalism include lost jobs (“technological unemployment”), bankrupt companies and vanishing industries, Schumpeter and his followers emphasized the long-term consequences of that destruction: economic growth, enhanced productivity, improved products, better jobs and economic wealth. One of the primary drivers of rapid technological change is Moore’s Law, which can be summarized as the doubling of computational power every 18 months at the same cost.
How do we reconcile the commonly-held belief that technology innovations will always have a beneficial impact on economic growth with today’s sluggish economic growth? Are we still in the destruction phase? Will some technology innovation ultimately drive growth in unanticipated ways? If so, which technologies hold the most promise, and what effect will they have?
I examined four significant technology trends identified by Erik Peterson as the most likely to have an economic impact: big data and supercomputers, nanotechnology (specially 3D printing), the human genome project and robotics. I applied an analytical framework developed by Harvard Business School Professor Clayton Christenson, who categorized innovations as “Empowering Innovations” or “Sustaining Innovations” that create or sustain economic growth or “Efficiency Innovations” that lead to the loss of jobs, recognizing that Efficiency Innovations often free up capital for future deployment in job-generating growth.
My preliminary conclusions were mixed. Robotics appeared to be the most depressing example of “Efficiency Innovations.” A New York Times article by Adam Davidson concluded that 6 million manufacturing jobs in the US have been lost over the past decade, more to automation than offshoring, and these jobs aren’t likely to come back. Even more depressing, Davidson concluded that the pay for more skilled manufacturing jobs (such as operating robots) was comparable to the pay of an assistant manager at a fast food restaurant. Similarly, some analysts characterized 3D printing as “Efficiency Innovations,” recognizing that other innovations from other aspects of nanotechnology may be more beneficial. While these manufacturing technologies (robotics and 3D printing) may not be squarely in the middle of the “Path to a Bright Future,” perhaps their innovations will continue to generate profits, free up growth capital and enable US companies to compete.
On the other hand, analysts are quite optimistic about the likely impact of genomics, big data and nanotechnology (other than perhaps 3D printing) on economic growth, not to mention the benefits to mankind. These trends should lead to “Empowering Innovations” or at least “Sustaining Innovations.”
One interesting question is how these technology trends are playing out in Georgia. Interestingly, local educational institutions (particularly Georgia Tech and Emory) appear to be playing a significant role in research and development in each of these areas. Every time I researched one of these topics, a Georgia Tech or Emory study, white paper or symposium popped up.
I need to spend more time evaluating how this R&D has contributed to the successes of Georgia startups in these four areas. I have run into a number of Georgia technology companies that claim to be innovative in “big data,” including in the FinTech area. I hope that some of the Top 40 applicants will be innovative in genomics, big data, nanotechnology or even robotics.